With Singapore banks trading at “out of crisis” low valuations, slight sniff of earnings upgrades could lead to re-rating, says Morgan Stanley; “we see many possible triggers for a re-rating, including an improved global economic outlook or a lift in rates.” 

Says upcoming 3Q10 results could also be catalyst if weak growth trend in 2Q10 reverses. Expects OCBC (O39.SG), UOB (U11.SG) to benefit from pick-up in corporate, SME loan volumes, plus reduction in rate of sequential net interest margin decline. 

 

Says OCBC has greater upside potential than UOB (U11.SG) as bank expected to benefit sooner from improved capital markets given its greater exposure, reliance on wholesale and private banking rather than mass-affluent wealth management. 

 

Tips $545 million earnings for OCBC vs $503 million in 2Q10, $605 million for UOB vs $602 million in 2Q10. Rates OCBC at Overweight, $10.48 target, UOB at Equalweight, $20.75 target. Has no rating on DBS (D05.SG).